MM Insurance News 04/17/18

CASES OF CONSEQUENCE

FOURTH CIRCUIT Additional Insureds (NC)

The Fourth Circuit has ruled that a second tier subcontractor’s CGL insurer erroneously failed to defend a personal injury suit brought by one of its employees against the building subcontractor that had hired it, notwithstanding an exclusion for injuries arising out of the named insured’s operations. In Continental Cas. Co. v. Amerisure Ins. Co., No. 17-1149 (4th Cir. Mar. 28, 2018), the Court of Appeals held that it was possible that the injuries arose out of operations being conducted at the time by other subcontractors on the job site. While therefore affirming a North Carolina District Court’s ruling that Amerisure was obliged to reimburse CNA for the money that it paid to settle the claims but set aside the lower court’s judgment that both insurers had a duty to defend as it concluded that Amerisure was solely liable for the costs of defense.

FIFTH CIRCUIT Contribution/Equitable Recoveries (MS)

In a dispute concerning the priority of coverages applicable to a massive explosion at the insured’s chemical plant in Mississippi, the Fifth Circuit has issued an opinion in Colony Ins. Co. v. First Speciality Ins. Co., No. 17-60094 (5th Cir. April 16, 2018) seeking clarification from the Mississippi Supreme Court with respect to the question of whether an insurer that voluntarily funds a settlement can recover some or all of that amount from another insurer through an equitable subrogation claim. Specifically, the Fifth Circuit certified these questions to the state court:

1. Does an insurer act under “compulsion” if it takes the legal position that an entity purporting to be its insured is not covered by its policy, but nonetheless pays a settlement demand in good faith to avoid potentially greater liability that could arise from a future coverage determination?

2. Does an insurer satisfy the “legal duty” standard if it makes a settlement payment on behalf of a purported insured whose defense it has assumed in good faith, but whose coverage under the policy has not been definitively resolved, even if the insurer maintains that the purported insured is not actually insured under the policy?

CALIFORNIA First Party/Appraisal

The Second District has ruled in Khorsand v. Liberty Mutual Fire Ins. Co. ,B280273 (Cal. App. Feb 27, 2018) that a trial judge violated Evidence Code § 703.5 in admitting part of an appraiser's declaration that the insured's offered in opposing confirmation of the award. In an unpublished aspect of decision, the Court of Appeal further rejected the insured's challenges to the confirmation of the award and affirmed the underlying court's judgment confirming the award.

COLORADO First Party/Appraisal

The Colorado Supreme Court has granted review of the Court of Appeals’ ruling last summer in Owners Ins. Co. v. Dakota Station II Condominium Assoc. construing what it means to be an “impartial appraiser” in a first party valuation dispute.

CONNECTICUT “Personal Injury”/”Wrongful Entry”

A federal judge has ruled fraudulent bookkeeping entries by Bernard Madoff that resulted not only resulted in $3.75 million being drained from the insured’s investment account but also ultimately obliged the insured to pay over $3 milliion to resolve “claw back” claims by the court-appointed Trustee are not oovered under the investor’s personal liability policies. In Kostin v. Pacific Ind. Co., No. 17-1320 (D. Conn. April 10, 2018), Judge Arterton rejected the insured’s contention that the lack of a definition of “wrongful entry” rendered it ambiguous or that improper bookkeeping entries are a “wrongful entry” within the scope of the policies’ “personal injury” coverage.

CONNECTICUT Crumbling Foundation Claims

Two federal judges have reached somewhat conflicting conclusions with respect to the availability of first party coverage for homeowners whose homes have “crumbling foundations” due to impurities in the concrete that was used to build their homes. In light of this gradual process of decay, Judge Shea ruled in Rudeen v. Allstate Ins. Co., No. 16-1827 (D. Conn. March 20, 2018) that the insured’s home had not suffered a “sudden and accidental direct physical loss.” The District Court denied Utica’s motion to dismiss, however, as only one of its policies was attached to the Motion and due to the fact the claims were not clearly subject to a “cracking” exclusion in the policy. In Jang v Liberty Mutual Fire Ins. Co., No. 15-1243 (D. Conn. Mar. 27, 2018), Judge Arterton affirmed a Magistrate’s recommendation that Liberty Mutual’s motion to dismiss be denied in light of conflicting expert opinions concerning the cause of the loss and the possibility that it might have been caused by hidden decay or defective building materials under older policies that lacked “sudden and accidental” collapse language.

ILLINOIS Property Insurance/Appraisal/Due Process

The Fifth District has set aside a lower court’s order appointing an appraisal umpire based upon State Farm’s failure to do so. In Witcher v. State Farm Fire & Cas. Co., 2018 IL App. (5th) 17001 (Ill. App. Mar. 6, 2018), the Appellate Court found that the trial court had not had jurisdiction over State Farm at the time it entered the order appointing the appraisal umpire, as no summons had been issued to State Farm nor had it been served the plaintiff's petition for appointment of an appraisal umpire. The court rejected the insured’s contention that such formalities were not required because this was not an action at law and because the appraisal provision did not require formal service of the petition for appointment of an appraisal umpire.

MONTANA Declaratory Relief/Bad Faith

The Montana Supreme Court has ruled in Marshall v. Safeco Ins. Co. of Illinois, 2018 MT 45 (Mont.. Mar. 13 2018) that a trial court erred in dismissing the insured's action for declaratory relief with respect to whether an auto insurer's reduction in payments based on the collateral source rule presented a justiciable controversy. The Supreme Court also ruled that the trial court should not have dismissed the plaintiff's bad-faith claims as it "was improper for the district court to determine whether the Defendants acted reasonably absent a determination the Defendants' reasonable basis was solely grounded on a legal conclusion and no issues of fact remained in dispute."

NEW JERSEY Auto/UIM/Notice

The New Jersey Supreme Court has ruled that an underinsured insured’s decision to pursue litigation against a tortfeasor without notice to his auto insurer barred any right to subsequent seek UIM benefits. In Ferrante v. New Jersey Manufacturers Ins. Co., A-97-16 (N.J. April 11, 2018), the court declared that “by delaying notice to NJM, Ferrante violated the terms of his policy…which required him to inform NJM as soon as the lawsuit was brought -- not after arbitration, a high-low agreement, or a jury trial. Those requirements seek to protect NJM’s right to subrogation, which was clearly extinguished by Ferrante’s actions, irrespective of his state of mind.”

TEXAS Bad Faith

A full year after the Texas Supreme Court issued a confusing and controversial opinion analyzing the extent to which a policy holder may recover damages based upon an insurer's violation of the Texas Insurance Code in a case where the jury separately found that the insurer did not owe coverage for the insured’s first party loss, the Supreme Court has issued a series of new and conflicting opinions on rehearing. In the principal 66 page opinion for the majority, Justice Boyd declared in USAA Texas Lloyds Co. v. Menchaca, No. 14‑0721 (Tex. April 13, 2018) that the court was standing by the five rules that it adopted year ago in Menchacha I. Despite a bewildering welter of conflicting concurring and dissenting opinions, the court remanded the case for a new trial consistent with these new rules for recovery.

OTHER DEVELOPMENTS OF NOTE

* * * Inside the Insurance Industry * * *

Barbara Luck, who presently serves as president of global excess casualty at XL Group, has been hired by AIG to head up its North American casualty business effective May 7. Hiscox reported last week that confidential information belonging to hundreds of policyholders client may have been compromised by a cyber-attack on a U.S. “specialist law firm.”

* * * New Coverage Litigation * * *

The Plews Shadley firm has filed an action in state court in Indiana last week, seeking a declaration that the liability insurers of USA Gymnastics, including ACE American, Great American. Liberty Insurance Underwriters, RSUI and TIG, owe coverage for claims arising out of the alleged sexual misconduct of team doctor Larry Nassar.

* * * IBNR Update * * *

Approximately 207 million eggs from the Rose Acre Farms in North Carolina have been recalled after more than 20 individuals suffered salmonella poisoning.

* * * Restating the Law * * *

Following approval by the ALI Council late last week, the American Law Institute has circulated Proposed Final Draft No. 2 in advance of a final vote now scheduled for May 22. Among the changes is new text that the Reporters have adopted in the face of significant criticism from ALI members and outside commentators that the propose use of “custom, trade and usage” evidence as a means of refuting the plain meaning rule now set forth in Section 3. Comment c. now states that such evidence should only be used where it is already known:

When such sources of meaning can be discerned from public sources and with only limited discovery (such as through an affidavit of an expert in the trade or business, who is subject to deposition, but without the need for extensive document requests), this is the best approach.

There should be no need to take discovery to discern, prima facie, the existence of a custom, practice, or usage. Each party should be knowledgeable of custom, practice, and usage in its own trade or business; insurers should have access to information outside of discovery regarding custom, practice, and usages in the trades or businesses that they insure; and insureds should have access outside of discovery to insurance brokers and others with knowledge of the insurance industry. Discovery necessary to impeach an opposing party’s evidence is a matter that trial judges have the capacity to manage.

* * * Cyber-Update* * *

A federal judge in San Francisco agreed this week to certify a class action of consumer who alleged that Facebook illegally appropriated their biometric information.

* * * Sign Up Now * * *

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